Economist's belief about credit scores and employers

Economist's false belief about credit scores and employers

It's a good thing his papers say the views are solely those of the author and not the Federal Reserve or the Boston Fed. Credit Score Myth 2 (employers).

April 19, 2016 | By Greg Fisher

FACT:	The Federal Reserve Bank of St. Louis' website used to say, "In today's world, landlords, employers, government agencies, and insurance, utility and cell phone companies all use credit scores to determine the character and creditworthiness of potential customers, tenants and employees." Now it says, "In today's world, landlords, employers, government agencies, and insurance, utility and cell phone companies all use credit reports to determine the character and creditworthiness of potential customers, tenants and employees."
FACT:	The Federal Reserve Bank of Cleveland's website used to say, "Credit scores are used in nearly every part of our lives, from applications for car loans, mortgages, credit cards, and car insurance to even some hiring decisions." Now it says, "Editor's note: The original version of this paragraph incorrectly included references to the use of credit scores in hiring decisions."
FACT:	The Federal Reserve Bank of Boston's website still says: "A credit score is a measure of financial trustworthiness, instrumental for all aspects of individuals' financial transactions in the United States, including getting a loan, credit cards, and interest rates on borrowing. This measure is so prevalent that often nonfinancial agents such as prospective landlords and employers use it to assess the trustworthiness of a potential tenant or worker." The top person of that organization is Eric S. Rosengren. The authors of the document are Anat Bracha and Stephan Meier.

The Players

The Federal Reserve
Stephan Meier	Anat Bracha
Charles Sprenger	Thomas Lavelle
and Janet Yellen

vs.

A U.S. citizen
Greg Fisher, truthandfalsity.com

Myths 2 and 4

Employers do not use credit scores because they cannot even get them.

When somebody says that employers use credit scores, they always fail the truth test: Naming even one such employer. If they named one, there would be a very loud clamor.

There is no clamor. Sometimes, things turn into a philosophical debate that goes like this:

I saw a Leprechaun.

No, you did not.

Yes, I did.

Okay, prove it: Bring me that little man.

Comedy ensues.

In 2007, while working at the Federal Reserve bank of Boston, Stephan Meier and Charles Sprenger wrote, "Additionally, credit scores can be used by potential employers and landlords in employment and tenancy decisions."

That is false, and the authors provided no source or evidence to support the notion that employers use credit scores.

The Donut

As people yak about credit scores, sometimes they use a technique to wedge the word employers into their highfalutin presentation. It goes like this. They say

Score
Score
Score

Report; employers

Score
Score
Score

Readers are shocked.

In a document that says, "This version: May 8, 2008," the Meier and Sprenger duo wrote

Knowledge about credit scoring and one's credit score is very important in the United States for financial decisions, since credit scores are used to determine not only whether one gets a loan, but also the interest rate. In addition, credit reports may legally be used by employers, landlords, and insurance companies in their decision-making (see 15 U.S.C. §1681b). The advantage of our field study is that the outcome variable (that is, whether individuals choose to receive the counseling session) is an objectively observable behavioral measure. The participation decision does not depend on cognitive or learning abilities (as some financial literacy tests do), and the program is designed to have very low costs for participants (described below). We are able to measure time preferences with incentivized choice experiments both for those individuals who select into credit counseling and for those who do not.

In the field study, only about 55 percent of individuals choose to receive a free credit score and participate in the short credit counseling session. We show that this participation decision is highly correlated with individual time preference; more patient individuals are more likely to opt into the program. This result survives after controlling for a number of socio-demographic characteristics, such as income and education.

See it? That's The Donut: Mentions of credit scores, then credit reports, and back to scores. Somebody appears to have learned a trick or two in the time between those two Meier papers.

Unfortunately, years later, in 2015, a new writing partner of Meier had not learned, and repeats Credit Score Myth 2 (that employers use credit scores). See the text of that error below.

Interaction with the Federal Reserve Bank of Boston

The opening volley is questioning another questionable (and questioned) statement: Credit Score Myth 4 – that there is something significant about keeping one's balances below 30 percent of account limits.

The action begins with the Boston Fed PR guy.

From: Greg Fisher [mailto:greg@truthandfalsity.com]
Sent: Wednesday, March 30, 2016 2:45 PM
To: Thomas L. Lavelle [Federal Reserve Bank of Boston]
Subject: credit score, below 30 percent

We just talked. #1603af

Your website states, "A lower percentage of credit use (best is below 30 percent) increases a credit score, since it indicates that the individual is not financially constrained."

What happens at 30 percent? Does my credit score turn into a pumpkin?

What is the name of the person you got the information that is the basis for that statement from?

--
Greg Fisher
Truth and Falsity
truthandfalsity.com
Page A2
pagea2.com
The Credit Scoring Site
creditscoring.com
PO Box 342
Dayton, Ohio 45409-0342
937-681-3224

From: Greg Fisher
Sent: Wednesday, March 30, 2016 3:41 PM
To: Scott N. Schell [Vice President for Public Affairs, Columbia University]
Subject: FW: credit score, below 30 percent, 3087

What is your accessibility policy?

--
Greg Fisher
Truth and Falsity
truthandfalsity.com
Page A2
pagea2.com
The Credit Scoring Site
creditscoring.com
PO Box 342
Dayton, Ohio 45409-0342
mobile/text 937-681-3224

From: Greg Fisher [mailto:greg@truthandfalsity.com]
Sent: Friday, April 01, 2016 11:53 AM
To: Thomas L. Lavelle, Federal Reserve Bank of Boston
Subject: FW: Contact

Is this your idea of a response prior to the deadline?

--
Greg Fisher
truthandfalsity.com
PO Box 342
Dayton, Ohio 45409-0342

From: Meier, Stephan [Columbia University]
Sent: Thursday, March 31, 2016 10:55 PM
To: greg@truthandfalsity.com
Subject: Contact

Dear Mr. Fisher, I trust this email finds you well.

I saw on Twitter that you tried to contact me. I am out of the office for the last two weeks.

Please send me an email with questions which I try to answer if I can.

Best, Stephan

Sent from my iPhone=

From: Greg Fisher [mailto:greg@truthandfalsity.com]
Sent: Monday, April 04, 2016 1:42 PM
To: Stephan Meier, Columbia Business School
Cc: Meg P. Bernhard, Harvard Crimson; M. George, WHDH; Adam T. Klein, Outten & Golden LLP; Piper Hoffman; J. Eich, WBZ-TV; Jennifer Openshaw; Thomas L. Lavelle; Bobbi Rebell, Reuters; Lauren Young, Reuters; Scott N. Schell
Subject: RE: credit score, employers, Hubub in the Hub

With your big megaphone, last year, you falsely wrote (in the first two sentences of your paper, no less): "A credit score is a measure of financial trustworthiness, instrumental for all aspects of individuals' financial transactions in the United States, including getting a loan, credit cards, and interest rates on borrowing. This measure is so prevalent that often nonfinancial agents such as prospective landlords and employers use it to assess the trustworthiness of a potential tenant or worker."

Employers do not use credit scores. I looked into it. Strike 1.

What is your evidence that employers use credit scores? Indeed, your statement is in the introduction—your thesis—as a notion so obvious it needs no evidence.

On January 5, 2007, the Harvard Crimson stated (and maintains publicly): "But as employees like Lisa Bailey are finding out, employers are also beginning to consult credit scores in employment decisions to determine whether candidates are responsible or reliable workers."

It uses the word scores 5 times (including once in the subtitle). It uses the word score (singular) once.

On January 10, 2007, Boston television station WHDH published, "She filed charges with the Equal Employment Opportunity Commission against Harvard University after the school rescinded a job offer to her client, Lisa Bailey, due to a low credit score."

The March, 2007 version of a paper you co-authored states, "Additionally, credit scores can be used by potential employers and landlords in employment and tenancy decisions."

What was your evidence for the notion that employers can use credit scores?

In May, 2007, a man from Outten & Golden, the law firm central in the Crimson story, gave a statement in a meeting of the U.S. Equal Employment Opportunity Commission. He said, "Statistics show that in the retail sector, the use of credit scores, for example, borders around 40 percent, meaning that 40 percent of U.S. retailer employers use credit history, credit score as a factor in determining employment suitability."

In March, 2008, another Boston television station, WBZ, falsely broadcast, "Carrying that debt can hurt credit scores, and more employers are now using those numbers to evaluate job candidates."

In July, 2008, an article in the internet domain marketwatch.com stated, "Credit-score use by employers is growing rapidly; up to 70% of all employers according to [then-Harvard University professor Elizabeth] Warren."

With no message attached, you wrote

From: Meier, Stephan [a Columbia University email address]
Sent: Thursday, March 31, 2016 10:55 PM
To: greg@truthandfalsity.com
Subject: Contact

Dear Mr. Fisher, I trust this email finds you well.

I saw on Twitter that you tried to contact me. I am out of the office for the last two weeks.

Please send me an email with questions which I try to answer if I can.

Best, Stephan
Sent from my iPhone=

My health is irrelevant. I sent your message to Thomas Lavelle, vice president and public information officer, Media and Government Relations, Federal Reserve Bank of Boston. Although I had never met, spoken to, or communicated at all with the provincial Mr. Lavelle, when I called him, he presumed a first-name basis for our relationship. We talked for nearly 20 minutes.

From: Greg Fisher [mailto:greg@truthandfalsity.com]
Sent: Friday, April 01, 2016 11:53 AM
To: Thomas L. Lavelle, Federal Reserve Bank of Boston
Subject: FW: Contact

Is this your idea of a response prior to the deadline?

--
Greg Fisher
truthandfalsity.com
PO Box 342
Dayton, Ohio 45409-0342

Strike 2.

Did you get the message to the Boston Fed, below, or not? You are playing the Contact Game and losing. It's Fenway, bottom of the ninth, two outs and two strikes. The Yankees are up by one, and it's time for you to step up to the plate. You are going to strike out.

Employers do not use credit scores. I looked into it. Meet Bobbi Rebell and her Reuters editors Lauren Young and Dan Grebler. Reply to this message today.

--
Greg Fisher
truthandfalsity.com
creditscoring.com
PO Box 342
Dayton, Ohio 45409-0342
mobile/text 937-681-3224

From: Meier, Stephan
Sent: Monday, April 04, 2016 5:10 PM
To: Greg Fisher
Subject: Re: credit score, employers, Hubub in the Hub

Thanks for your email, Mr. Fisher. Here is what Expedia[SIC] says (http://www.experian.com/credit-education/employment.html). I understand that they only exclude "Experian employment credit reports omit your account numbers, year of birth and references to your spouse." This means that they include Credit Scores.

Also, Expedia[SIC] mentions here (http://www.experian.com/credit-education/score-basics.html):

See the Same Type of Information Lenders, Landlords and Employers See

Order your Experian credit report and FICO^® score for only $19.95.

Best, Stephan

http://www.experian.com/credit-education/employment.html:

When Employers Check Your Credit

Federal law allows potential and current employers to view a modified version of your credit report for employment purposes such as hiring and promoting.

This employment credit report includes much of the information about your loans and credit cards that is listed in your credit...

... hire or promote an applicant. An employment credit report typically is used in addition to application information, references or skills testing to help employers make the best, most objective hiring decision.

--
Stephan Meier
Columbia University
Graduate School of Business
[address]
New York, NY 10027

p: [phone number]
e: [email address]
w: [webpage]
twitter: @meier_steph

From: Meier, Stephan
Sent: Monday, April 04, 2016 5:11 PM
To: Greg Fisher
Subject: Re: credit score, employers, Hubub in the Hub

I meant Experian.

--
Stephan Meier
Columbia University
Graduate School of Business
[address]
New York, NY 10027

p: [phone number]
e: [email address]
w: [webpage] twitter: @meier_steph

From: Greg Fisher [mailto:greg@truthandfalsity.com]
Sent: Tuesday, April 05, 2016 1:52 PM
To: Stephan Meier, Columbia Business School
Cc: Jacqueline Cooper
Subject: RE: credit score, employers, Hubub in the Hub, the moving finger

That is an amazing response. I'm going to play along as though you really believe what you wrote for the Federal Reserve System about employers using credit scores (and we haven't even broached 30, the other question I posed, yet). Here goes.

I can understand how you could be misled by Experian. The organization, led by Brian Cassin and Don Robert, is part of the larger problem of fundamental misunderstanding and general nonsense. For instance, Experian also states, "Most credit scores fall between 600 and 750" and "A score above 700 usually suggests good credit management." #n1502

Why Cassin chose to make that specific statement only he knows. On a scale of 300 to 850, 600 to 800 is a majority, too. Another majority is 600 to 850. And 550 to 800. And 500 to 800. While finite, there are, for sure, many ways to describe the distribution. Another set begins at the bottom: 300 to 750 is a majority. 400 to 800. 573 to 764.

But, if you (or anybody—European, American or other) parse the British CEO's words (numbers, that is), by using the word between, he's really saying 601 to 749. It makes me wonder if he's really, at all, on the ball. I don't expect him to be a mathematics expert, but come on—that's another part of some ridiculousness even a schoolboy can see. And you justify your very own words with some silly Experian sales line Mr. Cassin is responsible for.

Along comes a credit union in Florida. "The majority of credit scores fall between 600-750. 700 or higher is considered a good credit score," says Suncoast Credit Union (CEO: Tom Dorety). And, oh, the intrigue!

This Experian document states, "It is important to note that employers never get credit scores."

Make a copy of it now, because like your Cleveland, Ohio counterparts, Experian has gone rogue. The best I have on a date is "Scoped on: 02/11/2016" as appears in the document.